Switching to Federal Employment Pays Off

June 28, 2011

Federal pay was a hot-button issue during the 2010 campaign season, leading to some overheated rhetoric. Politicians and journalists exaggerated the federal-private pay disparity by comparing raw salary figures without accounting for the above-average skills of federal workers. On the other side, defenders of federal pay, particularly public-sector unions, unreasonably claimed that federal workers are underpaid and described evidence to the contrary as "lies" and "scapegoating," says Jason Richwine, a senior policy analyst with the Heritage Foundation.

Congress has become increasingly concerned that federal workers earn wages and benefits that are above market levels, creating a need for rigorous public-private pay comparisons. The most common analysis compares the wages of federal and private workers with the same observable characteristics at one point in time, typically finding a federal wage premium of 10 percent to 20 percent. Although well regarded and widely used, the cross-sectional method cannot account for unobserved abilities that may affect the premium estimate.

Controlling for unobserved abilities by following the same workers over time as they switch between the federal and private sectors, Richwine finds private-sector workers who switch to federal jobs receive an average real wage increase of 9 percent.

By contrast, private workers who find another private job earn just an additional 1 percent.

This implies an 8 percent federal premium.

Source: Jason Richwine, "Same Worker, Higher Wage: A Study of Workers Who Switch from Private to Federal," The Heritage Foundation, June 15, 2011.